INTRODUCTION AND GENERAL NOTES 5
problem to deal with. Depreciation enters into the cost of production
 and must be covered in the sale price if there is to be
any profit. The cost of the perishable parts of the plant which
are consumed, just as fuel is consumed though at a slower rate,
must be recovered sooner or later.
Definition of Terms. — The definitions of terms, herein presented,
 relate to the sense in which these terms are used in this
volume. There is not yet any perfect agreement among engineers
 and accountants relating to all of these terms and, as
time goes on, some modification of terms or of the definitions
of terms is to be expected. These definitions are therefore
offered with due appreciation of the fact that some of them may
not survive and that others remain subject to modification.
The Agency Theory. — Every owner of a public service property
 is in a certain sense the agent of the rate-payer. If regarded
 as such agent he is under obligation to render the service
which he has engaged to perform in a satisfactory manner; he
is entitled to protection against unreasonable competition, and
he is entitled to protection of his investment, provided, of course,
that the investment is a proper and reasonable one. There may
be some cases, however, where unwise investments have been
made, and others where part compensation for making the investment
 has been found in the increased value of real estate
or other property, perhaps not connected with the utility but
owned by the same individuals who own the utility, and in such
cases the value of the service rendered to the public may bear
an unusual relation to the investment.
Thus an irrigation canal, which was constructed to develop
a region of little or no value without water, when considered by
itself, apart from the land which it irrigates, may have cost so
much that the service charges cannot be made high enough to
yield a revenue on its cost. And yet the canal was justified,
though perhaps not as a separate venture. In such cases a
transfer of the canal to the land owner would be appropriate
in order that the question of a reasonable return on invested
capital might be eliminated, or as an alternative a bonus charge